Pension plan taxes and tax advantages

Learn more about the taxation of pension plans
Among the main characteristics of pension plans, which make them one of the most suitable vehicles for saving for retirement, are their tax characteristics. The amounts contributed to a pension plan are tax-deductible, reducing the taxpayer's taxable income base for Personal Income Tax purposes, thereby providing a tax saving that will depend on the resulting marginal type.
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This tax deduction has a limit, which will be the lower of the following amounts: 8,000 euros per year or 30% of your net income from employment and economic activities. Moreover, taxpayers whose spouse does not have employment income and/or whose income from economic activities is less than 8,000 euros a year can contribute a maximum of 2,500 euros a year to their spouse's plan.

Furthermore, for the people with a physical or mental disability of at least 65%, the law allows the annual maximum limit of contributions to reach 24,250 euros, including contributions made by third parties, which may not exceed 10,000 euros a year.

Taxation upon redeeming the pension plan


The taxation of pension plans is subject to different conditions. The amount arising from redeeming a pension plan is given the name “consolidated rights”, and it can be made up of both contributions and any revaluation that these contributions may have experienced. The consolidated rights of the plan are considered employment income and are therefore declared for Personal Income Tax purposes.

This will be how they are taxed, regardless of the contingency that has led to the redemption. Therefore, in the event of death of the plan holder, the beneficiaries of a pension plan will be taxed in the way described through Personal Income Tax and under no circumstances through Inheritance and Donations Tax.

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Provisionally, the taxation of plans with shares dating prior to December 31, 2006, which are redeemed as capital, will benefit from a 40% tax reduction, provided that the redemption occurs within the time frame stipulated by the law, which since 2015 has been two fiscal years after the right-granting event.

For causal events occurring between 2011 and 2014, the period is of eight fiscal years, and for causal events that occurred in 2010 or earlier, the deadline for requesting the deduction is the 2018 fiscal year.

For the amount subject to taxation, rates that will fluctuate between 19% and 45% will apply, depending on the Autonomous Community region of residence.

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